California’s cannabis industry might get some relief through tax reform

Published Feb 5, 2020 10:00 a.m. ET
iStock / Liudi Hara

Is weed legal in California? Yes, and No, because federally, there is nowhere in America where cannabis use is permitted. The United States of America and the entire world is waiting for federal marijuana legalization to be passed in the country.

The California cannabis industry is hoping that the marijuana regulatory and tax collection's overhaul will mean fewer headaches for those that are licensed California marijuana companies. This overhaul looks like help may be on the way in 2020 for the struggling legitimate cannabis operations.

Annual budget

Governor Gavin Newsom of California announced his annual budget; cannabis will also be included. He plans to merge three regulatory agencies to form one single department called the DDC.

  • Department of Food and Agriculture
  • Department of Public Health
  • Bureau of Cannabis Control

The Department of Cannabis Control (DCC). Gavin Newsom hopes this is achieved by July 2021. Marijuana tax collections will become streamlined, and the combining and streamlining of the three departments will have all the regulatory power under one hand, the DCC. This will eliminate any difference in the interpretations of the three departments' interpretations of the regulations.

California tax rate

California lawmakers revived a proposal in which California’s tax rate on cannabis would be temporarily cut. The goal is to boost the legal cannabis market that some officials believe is on the brink of collapse. Assemblyman Rob Bonta has noted that 75% of cannabis sales are from the black market. He is hopeful that this movement that Governor Newsom proposes will help in the reduction of the unlicensed and legacy market.

The reduction of California’s tax rate of 15% to 11% for three years and the additional help of eliminating a cultivation tax is perceived to be a step in the right direction. California’s tax rate cut is also supported by the State Treasurer, who also feels that Assembly Bill 1948 will help to provide relief to the cannabis industry, which is on the brink of collapsing.

Sad to say, but the California legal cannabis market has not grown as was expected. The cannabis industry has a few factors that they believe have contributed to this fact. Some of the factors include bureaucratic red tape, high taxes and the big issue that three-quarters of the Cities in California have banned cannabis shops. The California Cannabis Industry Assn., spokesperson Josh Drayton insists that this step is critical in the survival of the California cannabis industry.

Tax structure

The simplifying of the tax structure to include changing the point of tax collection for cannabis taxes to the first, not the final distributor, is a necessary step. This change would eliminate the state having to estimate the mark-up rate on the proposed cannabis products in the determination of a wholesale tax rate that ensures 15% to pay on gross receipts at the retail level. This procedure was initiated and increased the California ta rate on January 1. This movement has not gone without drawing criticism.

Proposition 64, the initiative that made California perhaps the most populous state in the U.S. to legalize cannabis for recreational enjoyment. The action paved the path in 2016 for Californians who are 21 or older to transport, legally possess, and also purchase up to 28.5 grams of marijuana for their recreational pleasure.

No shortterm fix for challenges in California pot market

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